Do Cryptocurrencies Such as Bitcoin Have a Future?
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As a value exchange mechanism... Certainly. Already useful (and troublesome, to certain establishments) for that.
As a secondary ("world"/"international") or even primary currency... Only if your already-legitimized currency is performing worse (hmmm, Argentina, Greece, Iceland, Russia...).
As a third-world currency exchanged via cell phones... Well, now we're talking. Although anything that stores value can be used in the same way, which is exactly how M-Pesa started out as phone credits (the "base" or "backing" value) and is now used for much more than that.
I will say that anyone who travels (still a very underrated undertaking that abysmally few Americans engage in) has been frustrated by currency exchange. If I could default to something like Bitcoin when I travel, it would ease that pain quite a bit.
Governments are concerned about "capital flight". Thing is, it's difficult to destroy (as well as to create) "value," it usually just gets transformed. It therefore stands to reason that if you don't want your country's value to flee, stop debasing your own currency (so that people stop exchanging it for other currencies), and make things of value (so that more representations of value, i.e. cash, flow into your country).
Bitcoin's transaction cost and risk is necessarily greater than any centralised solution, so as soon as it establishes a useful market it can be undercut. (Don't quote the minimum transaction fee in response to this, quote the miner electricity cost per transaction, the exchange bid/offer spread, and the escrow fees if relevant).
It's entirely trivial for value to be destroyed: this is what happened in the leveraged property downturn as recently as 2008.
"Just fix your current account deficit" is about as useful a piece of advice for countries as "just create jobs", ie not very.
What? Only if you don't treat bitcoin as a currency. If bitcoin is used as its own currency, and both you and the seller hold bitcoin, there is no exchange, or at most one: When you buy in from your existing currency.
If the buyer and seller aren't holding bitcoin, a simple fiat transaction turns into three transactions.
Not true. Bitcoin in and of itself doesn't work like this. Yes if you have dollars and you need bitcoin then it's an extra conversion. But it's like saying it takes two conversions to use the dollar when you happen to have euros or yen or whatever else. This is a startup phase issue, not a long-term issue. And even if you just begin, you can buy e.g. $1k of bitcoin and buy hundreds of cups of coffee, and only that first transaction was 'double', not the hundreds after. Moot point as far as I'm concerned.
> Bitcoin's transaction cost and risk is necessarily greater than any centralised solution
No it's not. Would you say for example that, putting all the power to vote in elections on 1 person is less risky than democratically letting the country vote? Centralized solutions are more prone to corruption, 'too big to fail', and lack any redundancy. A decentralized solution however is very hard to corrupt, if any of its elements fail it can continue to exist, and thus it's less at risk of individual failure.
Transaction costs of centralized solutions aren't necessarily cheaper. They certainly can be, I agree. But that doesn't mean it will be. The reason for that is that payment networks like Visa operate with billions of plastic cards with passwords written on them and chips that can be scanned by thieves just sitting nearby with a computer, millions of vendors with archaic hardware, with an insurance product built on top of this unsafe 1950s invention known as credit cards. There are huge costs involved here. A network so expensive that there are only a few major credit card players involved. Same with something horrible like SWIFT. If anything, this is a payment system that will be disrupted and undercut, not the other way around. Perhaps after that we'll see a centralized solution that's actually better and cheaper than both, sure, but it's like saying let's not invent the car even when it's better than the horse, cause we may invent flying cars that'd be even better so why bother. It'll just be 'undercut' anyway.
> don't quote the minimum transaction fee in response to this, quote the miner electricity cost per transaction
On the first point: electricity costs of miners is not a marginal cost, thus you can't quote it as a transaction fee. It's a systemic cost. i.e. 25 bitcoins are rewarded every 10 minutes with every block regardless of whether there were 0 or 1 trillion transactions. Just think about that for a moment. It's a systemic cost to run the network even if NO transactions happen at all. It's not tied to the transaction number. Fees are. Block rewards are not. And in the long term, which we're talking about, block rewards are zero. And given that blocks are on a course to go from 1 mb to 1 gigabyte in the next few decades (under the plan of Chief Scientist at TBF Gavin Andresen, we're looking at 1000x more transactions. As such, transactions can replace current block rewards and then some, without increasing the fee per individual transaction (a few pennies). To compare this with roughly 30c + 3% fees on a purchase of a $1k laptop that credit cards or Stripe or Square or Paypal offer you is ridiculous. On the smaller end, microtransactions aren't even possible with most payment systems today, and on the larger end of the spectrum, million dollar transactions still cost pennies with bitcoin.
> the exchange bid/offer spread
Again, treat it as a currency. To use a currency there is no conversion involved. We covered that already. You can already get paid in bitcoin and pay bills in bitcoin, and remember we're talking longer term where paying with bitcoin is like the choice to pay with cash or card: ubiquitous.
But hell, even if you want to include the conversion like any other currency: check the bid/offer spread at your bank for dollar/euro, or at Paypal, it isn't pretty. Meanwhile at Circle the bid/offer spread is 0 and you can instantly buy and sell bitcoin. And at large exchanges the spread is generally much less than what I see at my bank or paypal (when I say generally read always, but I'm saying generally as I'm sure there are exceptions to be found.)
> this is what happened in the leveraged property downturn as recently as 2008.
You're misconstruing his point about capital flight. i.e. that is that if you build a house and create construction jobs, have value in the house, sell said house for money and then leave the country with said money by exchanging it for a foreign currency, the house is still there and the money didn't leave, it was bought by someone with foreign currency who obviously wants to spend that money in your economy. Nothing really left and no value was destroyed. There are certainly some effects but his point is that value isn't destroyed, it's just moved around or transformed.
"Just fix your current account deficit" is about as useful a piece of advice for countries as "just create jobs", ie not very.
Agreed that's a bit too simplistic. But I think the larger point he made holds true, that most governments over the long run shouldn't have to worry about capital flight. It's just one of many forms of protectionism that will fade away with time, and with it, one of the big reasons countries like China don't want bitcoin to become too big.
I'm working on a side project at the moment, and one of the fantastic parts of dealing with crypto coins is that going from nothing to being able to take payments is down to installing bitcoind (or the equivalent for other coins) and issuing jsonrpc commands to it.
Especially in countries where signing up to take payments by cards is cumbersome/slow, that's fantastic.
It had a huge spike of worth that was total bubble and it has deflated from it. It is still up dramatically from when I started buying them at $5 each.
I disagree that speculators have any role in discovery of true value - on the contrary, they mask true value and ensure our markets are inefficient, panicky, and volatile.
The only benefit I can see is there is an overall increase in liquidity but the cost of that liquidity is quite high.
You have to specify a timeframe when you claim this. For example, Bitcoin has been quite stable for the YTD. (Well, at least as far as Bitcoin goes.)
There are various hacks that are being proposed to increase the number of transactions per second, and reduce confirmation time. Ultimately, they're just that, though: hacks on a proof-of-concept.
What I'm really interested in is whether it's possible to have a cryptocurrency that doesn't rely on e.g. blockchain technology.
How you'd fix the issue of double-spending ("I can just copy-and-paste my money - yippee!") without a blockchain or equivalent is beyond me.
I'm just really intrigued by the idea of being able to cryptographically sign over a digital $5-equivalent -note to someone else, instantaneously, and without relying on a third party saying "Hmm, yep, that note looks legit to me".
Sadly, a lot of bitcoin's popularity seems to come from people who sincerely hope and believe that it's their lottery ticket to millions in the future. Whilst these people are vocal, it's probably a good idea to be aware of and filter out their voices.
[1] http://www.businessinsider.com/927-people-own-half-of-the-bi...
Yes, it is possible. MaidSafe is building the solution as we speak, and does not get anywhere near the attention it deserves. Because there is such a general lack of understanding of its underpinnings, it is usually lumped together with other blockchain technologies or altcoins. There is no blockchain, there are no transaction fees, and transactions are irreversible almost immediately (no confirmation time). There is no wasteful mining.
I wrote a pretty comprehensive article[0] on how it works from a technological standpoint if anyone is interested. Perhaps someone will find it useful.
[0] http://blanshey.com/introduction-to-maidsafe-what-it-is-how-...
Doing an admittedly very brief search, it seems there's a lot of scepticism about MaidSafe, ranging from it's "objectively a scam," through to a highly questionable IPO, and doubt over the core technology itself:
https://news.ycombinator.com/item?id=8081247
https://news.ycombinator.com/item?id=7641149
http://www.reddit.com/r/crypto/comments/24zext/what_does_rcr...
Clarifying on my original point about not relying on blockchain technology, I think imagining a purely offline system would get closer to the question in my head.
How much can be done without relying on a network / database / blockchain etc?
In any case, the objections and scepticism is healthy and would only serve to improve the project.
I'm not really sure what you're implying though--how can you have a cryptocurrency without communication (e.g. a network)?
I (possibly obviously) haven't done enough research in the area, but it seems like there are potentially showstopper questions about how to stop people gaming the system.
The reddit link also questioned how much of MaidSafe is, in effect, security through obscurity.
One thing that can be said - it's definitely interesting!
How can you have a cryptocurrency without communication?
Exactly - that's kinda what I'm asking! :)
Another rephrasing: is it possible to have some bitcoin-equivalent token sat on your computer which you can exchange for goods and services without consulting anyone else?
As far as I can tell, it's the double-spending problem that's the killer.
Dollar couples financial services with money transmission. Bitcoin allows to decouple those. Refunds can be covered by escrow services (with small help of 3-of-2 multisig) which can be provided by multiple parties, not only by your CC/bank. Please provide a single example of service that can be provided by CCs but can not be provided by companies that operate on Bitcoin network.
>> There are various hacks that are being proposed to increase the number of transactions per second, and reduce confirmation time.
Confirmation time is irrelevant, what you really care about in POS situation is TX delivery time - and it's covered by BIP70. BitPay serves BIP70 since Feb 2014.
TPS scales to Visa levels and beyond and there is nothing "hacky" about that. Increased block size are countered by IBLTs.
Want to talk about hacks of all kind? Talk about today's banks tech. Hundreds of millions of dollars being stolen by hackers, hundreds of billions of dollars of drug money being laundered by HSBC and friends, tech out of sixties, broken security model of CC, huge amount of regulation that attempts to fix all this mess. Costs costs costs. This is unfixable mess.
Disclosure - I own small(!) amount of Bitcoin.
more or less instant transactions? Like the guy said, transactions take forever with BTC
Ones where you want to be able to spend money that you've just received - those are slow with Bitcoin (ETA 5 minutes). This is a price you pay for your independence of banks. You can transfer money to anyone anytime and this type of transaction is impossible with VISA.
Other - when you pay with BTC at point of sale (POS) and only thing you care about is your counterparty being able to say "thank you for your money". Those are covered by BIP70, which makes transaction as fast and faster then VISA.
Ten minutes, and if you want to assume just a little bit of risk, you can simply wait until the transaction appears on the blockchain, which is pretty instantaneous. In all my bitcoin transactions, I haven't encountered a single double-spend.
> supports somewhere around 3 [three] transactions per second
This is flat-out wrong. Please check your facts before spreading misinformation. It CURRENTLY supports 7 [seven] transactions per second, and this cap was fixed in software, by limiting the block size to 1MB. It can be raised quite a bit (by raising the maximum block size), the devs were simply a little unsure what would happen, so they capped it at 7TPS. Source: https://en.bitcoin.it/wiki/Scalability
> and shifts risk from sellers to buyers (e.g. compare refund possibilities with credit cards)
Yes, let's compare. You can always reverse a credit card charge, or dispute it. There are known scams done by abusing PayPal, for example.
> various hacks that are being proposed to increase the number of transactions per second
There are no "hacks". It would simply be: Increase the maximum block size. In all likelihood, things would still work fine. Please read the Scalability doc I linked above.
> hacks on a proof-of-concept
Do you realize this "proof of concept" has been operating for 6 years now? With only a couple of hiccups which were quickly corrected? And that there are almost (if not more than) 500 (!) other cryptocurrencies out there, based on the same idea or variations thereof?
> whether it's possible to have a cryptocurrency that doesn't rely on e.g. blockchain technology.
Unknown, unless someone thinks of one. Just like it was unknown whether a decentralized transaction ledger could be secured, before Satoshi Nakamoto thought of one. And when someone does, that could simply be applied to any existing cryptocurrency.
> without a blockchain or equivalent is beyond me.
There is something called "Proof of Stake". You can google. It has some possible flaws, though. There are also other hybrid solutions.
> the idea of being able to cryptographically sign over a digital $5-equivalent -note to someone else, instantaneously, and without relying on a third party
That is impossible. You simply can't "rewrite" the dollar monetary system to use a decentralized technology. They use entirely different semantics. Say I wanted to "convert" an actual $5 to a "new, cryptographically secured, decentralized" dollar. What authority (see, you can't have any authorities in a decentralized scheme) would validate the $5, and then what authority (there's that word again) would issue you a credit in this new scheme? The new scheme would inevitably have to be centralized by fallible humans, unless you came up with a robot that would somehow validate a $20 bill, then completely destroy it while issuing you a "crypto dollar credit", which would somehow magically stay pinned to the US dollar... See, it doesn't work that way. Even "real" currencies don't work that way, they can all be speculated on, it's just that their pool of currency is so much deeper and their penetration so much wider (and their value pinned to enough real-world goods) that nobody really notices the ripple effects day-to-day.
> Sadly, a lot of bitcoin's popularity seems to come from people who sincerely hope
Are you seriously trying to disparage early-adopters, here. The same early adopters who adopt almost all new things and push them out into the mainstream...
> it's probably a good idea to be aware of and filter out their voices
Yes. Screw those rotten kids excited about new things! Let's wake them from their dreams and poop in their cereals, and give them a dose of reality!
Actual Bitcoin as we know it today will probably be an interesting historical anecdote.
I thought something better would come along, which is why I sold it. However the one thing that really rang with me was this. When I transferred the bitcoins to my account (bitstamp) I didn't even remember the fee. I'm not certain there even was a fee. However when I transferred the dollars, there definitely was a fee, Which seemed like a lot of money.
The cost of using bitcoin is a really big game changer. If it was stable, I think adoption would be bigger.
I just paid for my lunch in Bitcoin. Not as some evangelical, cryptanarchistic statement, but because I have bitcoins and I needed lunch. The mechanism for paying is on a par with credit cards, if not slightly above. I've watched the monetary value of my bitcoins plunge in the last year, but I've seen their practical value to me increase massively. A year ago I could buy precisely zero lunches for 1 BTC, now I'd get at least 50.
Was it really easier than taking out your credit/debit card and "beeping" it against the card reader? (i.e. PayPass/payWave).
Whilst I'm all in favour of pushing new technologies, I simply can't imagine that paying by bitcoin was easier than that!
From a business's perspective though, Bitcoin is immeasurably easier. No approval needed, just buy a £100 android tablet and off you go. Funds available immediately. Compare that to going down the bank and grovelling for them to let you take cards. Obviously it's not close to an alternative yet, but it's an easier flow.
I wish we would make decisions about a technology's or company's or economy's viability based on something less fickle than price.
I've also noticed a funny thing. If you actually understand Bitcoin, you tend to like it. If you don't seem to understand it, you tend to not like it. This is unfortunate. People seem to understand "money" (although they don't), but it is enough that they think they do. Not sure if that will work out with Bitcoin.
I have bought and sold more bitcoin since I started sportsbooking and playing poker with it than I ever had before.
With services like circle and bitcoin-friendly gambling sites, I am able to instantly deposit and withdraw to my gaming site, and then within 2-3 days have my winnings back into my bank account in my native currency.
It is really a better system than I have experienced gambling online with fiat previously.
The article mentions that 88% of cash in circulation is in $100 bills. (I know that the percentage of ALL transactions that are in cash is low.)
Dr. Harvey (on the "Yes" side), made the typical gesture, at least part right, that the technology is the interesting part. In fact, the subheading says it all: "Valuing Bitcoin as a Technology"---but an edit would improve the matter: "Valuing Technology"; or simply "Technology".
Other than those who have skin in the Bitcoin game, there's no reason for your average person to care about Bitcoin in particular, but the idea and the technological pursuits that it embodies are worth paying attention to. In fact, I think this is the primary reason HN likes Bitcoin---nobody cares about its economic logic or valuation or whether a new block every ten minutes enables liquidity or not. The IDEA behind Bitcoin, and subsequent cryptocurrencies, is what matters. The TECHNOLOGY that permits novel arrangements of power, social interaction, and human-computer interfacing is exciting.
Personally, I'm ambivalent on whether the technology is, on its own terms, good or bad. But, what I don't doubt, is whether the idea is going to stay---we won't call it "Bitcoin" in 10 years, but we may call it "Ethereum" or "Dogecoin" or something not yet invented. In fact, we'll likely just call it by some acronym only the geeks care about (but everyone uses): like HTTP or USB. The technology will recede from its specular, media-driven attention and just become how things are done. Banks will transfer funds on a blockchain (perhaps the government forces them for transparency and verifiability), ATMs will become decentralized, you'll establish a smart contract with your Uber driver... and so on.[1]
[1] For anyone interested, I'll be giving a talk on cryptocurrencies at NYU this Wednesday (March 4, 5PM), along with Bill Maurer and Finn Brunton. Free registration here: http://events.nyu.edu/#event_id/30104/view/event
Meanwhile my (fat) share of myCurrency is getting value exponentially.
The issues with cryptocurrencies are much deeper than implementation errors. I may actually agree with your economic assessment of Bitcoin, but I think that's quite beside the point, and we should learn to speak about the deeper issues and debate these.
1-Bitcoin is just an huge ponzi scheme.
The early birds to got into the system are the ones that will have HUGE profits. So I want to create my own currency and be able to get an advantage also.
2-Bitcoin is unfair.
Besides everything governments taking care of currency seems the most fair and democratic way of dealing with it. With Bitcoin technical people have advantage over non-technical people. It remembers me Nietzsche when he writes something like:
"There are only 3 types of people: the rich that wants to keep being rich; the poor that wants to be rich; the intelectual, that using his ideals (advantages) wants to be rich."
[1] Due to the strong bias, I created another account to express this unpopular opinion. Shouldn't be like this.
[edited]
That is in most part due to a bubble caused by people thinking of Bitcoin as an investment vehicle.
> Technical people have advantage over non-technical people. It remembers me Nietzsche when he tells something like:
Explain?
Not really, Bitcoin's where front loaded. It would have been easy to have the same fixed number of bitcoins, but set things so only 70% of possible bitcoins where released in the first 100 years.
With all due respect, I think that is true of pretty much everything. Smart people have an advantage over non-smart people. If you want to level the playing field, you can always research the Hutu massacre of the Tutsis...
Meanwhile my (fat) share of myCurrency is getting value exponentially.
What I'm concerned with is, if this made public, would it devalue the worth of Bitcoin?
And, how will Bitcoin deal with quantum computing?
I disagree with your reasoning for the same reason I disagree with LTV. That time is just sunk cost - there's no value to it, and certainly no market value.
That's a cost, not a value, and it's a purely wasteful activity.
(By the way, us tech people are in a lucky situation exactly because you are not right: we don't work very hard compared to many factory workers in the world but still get very high salaries.)